A Once-in-a-Decade Buying Opportunity? This Magnificent Dividend Stock Is Dirt Cheap Right Now.

Nike (NYSE: NKE) has seen better days. The stock of the leading athletic footwear and apparel maker currently sits nearly 60% below its peak from a few years ago. It has fallen 40% from its 52-week high. That has led to Nike trading at its lowest valuation in over a decade.

The shoe stock's slumping price has also driven up its dividend yield to over 2%. That's its highest level since the financial crisis and well above the S&P 500 's average (around 1.3%). It's a compelling level, given the company's exceptional record of increasing its dividend. Here's a look at whether now might be one of the best times to buy Nike in years.

Working to fix the problems it created

Nike is facing problems of its own making. It focused so aggressively on growing its online sales that it cut ties with several retailers. That strategy left the company wide open to competition in the physical retail world , where customers could try on rival products. As a result, its wholesale sales plummeted while its direct sales also slowed.

The company has since worked to rebuild its wholesale relationships to turn around its sagging sales in those markets. However, its direct sales have continued to weaken. That was evident in its latest earnings report. In its fiscal fourth quarter (ended May 31), revenue slipped 2% to $12.6 billion as a 5% improvement in wholesale sales couldn't offset the 8% decline in NIKE Direct revenue.

"We are taking our near-term challenges head-on," stated CEO John Donahoe in the quarterly earnings release. He noted that the company is making progress by continuing to innovate, "moving at the pace of the consumer," and focusing on the entire marketplace.

However, the company expects its challenges to continue in the near term. After eking out a modest 1% revenue rise in its last fiscal year, Nike expects its sales to decline by a mid-single-digit rate in the current fiscal year. That came as a surprise to analysts, who were expecting a modest increase on average. The company plans to invest heavily in product innovation, sales, and marketing to get back on a growth track.

The top-notch dividend stock is on sale

Despite its falling revenue, Nike remains strongly profitable. The company's actions to improve its margins paid off last year. Its net income rose 12% to $5.7 billion, or $3.73 per share.

With the stock's price sinking, Nike now trades at a bargain basement price of around 19 times earnings. That's its lowest level since 2012 and well off its peak of 85  coming out of the toughest years of the pandemic in 2021. Nike is also cheaper than the broader market (the S&P 500's P/E ratio is around 26).

That's an attractive level for a company with a great record of growing its dividend. The company has increased its payout for 22 straight years, including by 9% last November.

Despite its sluggish sales, Nike should have no problem continuing to increase its payout. The company's cash flow from operations grew 27% last year to $7.4 billion. That easily covered its dividend outlay of $2.2 billion. It also provided the company with cash to buy back its cheap shares. Nike repurchased $4.3 billion of its stock last year as part of a four-year, $18 billion authorization. Even with all those cash returns, Nike ended its fiscal year with $11.6 billion in cash and short-term investments, up $0.9 billion from the year-ago period.

The company's strong cash flow and cash balance will give it the flexibility to continue returning money to shareholders. It has about $9.1 billion remaining on its current repurchase authorization, which is enough to retire 8.5% of its outstanding shares at the current price.

A compelling buying opportunity

Nike trades at its lowest valuation and highest dividend yield in over a decade. While the company is facing challenges, it has the brand power and financial fortitude to turn things around. Because of that, now looks like one of the best times in quite a while to buy this top-notch dividend growth stock.

Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike. The Motley Fool recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy .